Palestinian suicide bombings and Israeli air strikes continued. Israel provoked outrage among Palestinians by killing Hamas spiritual leader Sheikh Ahmed Yassin in a targeted missile attack in March.
A second senior leader, Abdel-Aziz al-Rantissi, was killed a month later.
In April Ariel Sharon revealed a "disengagement plan" which included the withdrawal of all 8,000 settlers and the troops that protect them in the Gaza Strip, and from three small settlements in the northern West Bank.
Construction of the West Bank barrier continued, despite increasing protests and changes to the route in response to a verdict in the Israeli High Court.
In July, the International Court of Justice in The Hague pronounced the barrier illegal, but Israel dismissed the non-binding ruling.
Intra-Palestinian political turmoil broke out over the summer as Yasser Arafat, Prime Minister Ahmed Qurei and various Palestinian factions battled over reform of the security forces.
After three bombings in August and September and numerous Palestinian rocket attacks on Israeli towns, Israel launched a major and bloody incursion into northern Gaza.
In late October Arafat was taken ill and flown to France for emergency treatment. He died of a mysterious blood disorder on 11 November.
The news was met with an outpouring of grief among Palestinians. Emotional crowds engulfed Mr Arafat's compound in Ramallah as his body arrived by helicopter to be buried.
Mahmoud Abbas, who had spent a brief spell as prime minister in 2002, was confirmed as Arafat's successor as chairman of the PLO.